(Book Review) The Unbanking Of America: How the New Middle Class Survives by Lisa Servon

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Who is Lisa Servon?

Lisa Servon is an author, public speaker, professor, and former school dean. As a university professor she has studied financial services for many years. As a speaker she’s spoken on many platforms like NPR and PBS.

Lisa Servon was primarily interested in understanding alternative financial services like check cashing stores and why so many people prefer them over big banks, despite the negative narrative around check cashing stores and lenders.

But Lisa wasn’t content to read the impersonal data and articles available about the subject. Instead, she decided to do her own research on alternative financial services. This is what led Lisa Servon to get a job as a teller at check cashing stores like RiteCheck and Check Center.

Alongside all of her field experience and research, Lisa Servon has written countless books and articles on many financial matters. You can check out everything Lisa Servon is doing and learn all about her research findings on her website: LisaServon.com

The Unbanking of America: How the New Middle Class Survives

Before we can get into this book review there are some keywords you’ll need to understand. You’ll also want to understand these key terms before reading the book.

Payday Loan: Payday loans are small, short-term loans that are secured against a future paycheck.

Alternative Financial Services and Institutions: Alternative financial services are financial products like check cashing and payday loans. They are financial products and services that usually have a wider approval rating. Alternative financial institutions are the facilities that offer these services.

Traditional Financial Services and Institutions: Traditional financial institutions are places like typical banks and credit unions that offer standard financial services like checking and savings accounts.

Banked: The term “banked” in a financial context refers to individuals who have a strong relationship with banks, have a checking and saving account, and only use traditional institutions for all their finances.

Underbanked: The term “underbanked” refers to individuals who use both alternative and traditional financial institutions. For instance, they might have a checking account but they still use their local check cashing store to cash their paychecks or get a short-term loan.

Unbanked: The term “unbanked” refers to individuals who only use alternative institutions for all their finances. Someone who is unbanked doesn’t have a bank account and if they need a financial service like check cashing they prefer going to their local check cashing store.

Lisa Servon is a prolific writer with many published books and articles. One of her most popular reads is her book, The Unbanking of America: How the New Middle Class Survives.

This book goes over in detail her experience working as a teller at the alternative financial institution RiteCheck. Here’s an inside look at the chapters and topics covered in her book:

The Chapters:

  1. We’re All Underbanked
  2. Where Everybody Knows Your Name
  3. Bankonomics, or How Banking Changed and Most of Us Lost Out
  4. The New Middle Class
  5. The Credit Trap: “Bad Debt” and Real Life
  6. Payday Loans: Making the Best of Poor Options
  7. Living in the Minus: The Millennial Perspective
  8. Borrowing and Saving Under the Radar
  9. Inside the Innovators
  10. Rejecting the New Normal

Lisa Servon opens her book with a quote:

“Not everything that counts can be counted, and not everything that can be counted counts.”

by William Bruce Cameron

This quote is the perfect opener for this book because it outlines one of the primary themes—to take a closer look when deciding what really counts because sometimes the public narrative about what’s important can be lacking.

Lisa Servon goes over many financial issues and topics of debate in her book. She takes a very new, open-minded, and refreshing look into the world of finance and all its many sides.

The way banks have changed and evolved.

The truth is banking and financial products have undergone a lot of change in recent years. Banking used to be a much smaller, neighbor-oriented business. You’d go to your neighborhood bank or credit union, and there you could handle your finances with tellers you knew and saw all the time.

Banking has since become a much larger industry and as such it’s become more impersonal. The growth of banks has also changed the banking services are set up. Now it seems banks are catering to a narrower and more elite demographic of acceptable customers for more profit rather than risking profit by widening the scope of their consumer audience.

Once upon a time financial institutions were open to a wide demographic of customers and provided simple, straightforward financial services and products. But now, banks are intentionally narrowing their range of customers and their services literally have pages and pages of digital fine print.

Banks are changing in this way because they are catering to their ideal customer. Which is great for the banks but less great for all the customers who are now locked out of those traditional financial services.

The problem with current narrative around finances.

Another problem Lisa Servon discusses is the disparity between our society’s narrative around banking and the reality around being unbanked or underbanked. It is a widely accepted idea in our financial culture today that being banked isn’t really a choice, it’s something you have to do in order to be financially responsible and smart. This then leads to the idea that being underbanked or unbanked is a problem for the poor and financially irresponsible.

But what if this narrative was missing the mark? This is what Lisa Servon strives to see in the studies she conducts and outlines in her book. She even goes so far as to argue the possibility that being banked should be a choice.

A new narrative around finances.

After experiencing the world of alternative financial solutions for herself during her work as a teller at a check cashing store, Lisa Servon came to some controversial conclusions.

For instance, maybe being banked should be a choice, not a requirement for financial stability and responsibility. What Lisa found is that traditional financial institutions just don’t provide the freedom and flexibility that certain financial demographics need, while alternative financial institutions do.

But this is a very different set of findings from what the overall societal narrative is around being banked, underbanked, or unbanked. “Convinced that having a bank account enables one to move up the economic ladder, they paint banks as the good guys and alternatives as the bad guys.” When the truth is, it takes being already up the economic ladder to a degree to have a bank account in the first place.

Lisa Servon explains it best herself,

“Julie Menin, commissioner for the Department of Consumer Affairs in New York City, writes that ‘mainstream banking services are associated with increased financial stability.’ This may be true, but there’s a check-and-egg problem here—do banks make financial security possible for their customers, or is it the other way around? Do people with financial security make banks possible? From the evidence I’ve gathered, mainstream banks aren’t doing a whole lot for people who aren’t financially stable already. Right now, alternative and informal practices do a better job of serving many people’s financial needs, especially among the many Americans who lack savings or a stable source of income.”

Some people prefer cash to cards. Some workers earn their income based on contracts, manual labor, and seasonal work that makes their income work on a different schedule than a typical office job. Not everyone’s finances look alike and Lisa argues that alternative financial institutions cater to a wider financial demographic than banks do.

Lisa Servon’s Data

Field researchers gather a lot of useful data because instead of staying in their office, they go where the data actually is. This is what Lisa Servon was doing while we worked as a teller at an alternative financial institution in order to see first-hand what it was really like.

Here are some of the facts:

The FDIC found that 25 million Americans were unbanked (meaning they did not have any bank account) in the year 2013 alone. The FDIC also found that 68 million more Americans were underbanked (meaning they have a bank account but still depend on alternative financial services). The facts are that a very large demographic of people are using and even depending on alternative financial stores.

Talking with customers at alternative financial services stores, Lisa found that many of them preferred to not deal with banks. It’s not difficult to see why that might be the case. In 2009, 76% of checking accounts were free. But this number dropped down to only 39% by 2011. Meanwhile, the fees to maintain a checking account went up an entire 25% just between 2010 and 2011. In the year 2017 alone, banks made over $34 billion in overdraft fees.

Another study found that as many as 6 out of every 10 Americans don’t even have $500 in savings when some savings accounts require even more than $500 just as a minimum daily balance.

For some financial demographics, banks are just too spendy a commodity when they can use simpler alternative financial options instead.

Buy Lisa Servon’s Books

Read more from Lisa Servon in any of her published works listed below. You can also find articles that she’s written for a shorter read on her homepage.

The Unbanking of America: How the New Middle Class Survives

  • Paperback: $11.97
  • Hardcover: $21.20
  • Kindle: $11.37

Bootstrap Capital: Microenterprises and the American Poor

  • Paperback: $22.99
  • Hardcover: $50.74

Bridging The Digital Divide: Community, Technology And Public Policy

  • Paperback: $5.99 to $44.98
  • Hardcover: $104.03 to $116.23
  • Kindle: $42.73

Gender and Planning: A Reader

  • Paperback: $33.56
  • Hardcover: $73.26


Sources


The New York Times. “Are Banks Too Expensive to Use?” by Lisa Servon.

American Banker. “Consumers are from Mars. Banks are from Venus,” by Lisa Servon.

The Washington Post. “To Reform the Credit Card Industry, Start with Credit Scores,” by Aaron Klein and Lisa Servon.

The Hill. “Philly Right to Ban Discriminatory Cashless Stores,” by Lisa Servon.

The American Prospect. “The Big Financial Divide: Why we have one banking system for the well-off and a ‘Wild West’ fringe for everyone else,” by Lisa Servon.

Bankrate. “The Battle of the Savings Accounts.”

Federal Deposit Insurance Corporation (FDIC). “National Survey of Unbanked and Underbanked Households.”

Oxford Academic. “How Do Payday Loans Affect Borrowers? Evidence from the U.K. Market,” by John Gathergood, Benedict Guttman-Kenney, and Stefan Hunt.

CNN Money. “6 in 10 Americans don’t have $500 in savings,” by Kathryn Vasel.

The University of Chicago Press Journals — The Journal of Law and Economics. “Consumer Borrowing after Payday Loan Bans,” by Neil Bhutta, Jacob Goldin, Tatiana Homonoff.

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